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What's in it for us? Network effects and bank payment innovation

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  • Milne , Alistair

    ()
    (Faculty of Finance, Cass Business School and Bank of Finland)

Abstract

The developed world exhibits substantial but poorly understood differences in the efficiency and quality of low-value payment services. This paper compares payments arrangements in the UK, Norway, Swe-den, and Finland, and discusses the impact of network effects on incentives to adopt new payments tech-nology. A model is presented, in which private benefits for investment in shared inter-bank payments in-frastructure are weak. In contrast, due to ‘account externalities’, there are strong incentives for investment in intra-bank payment systems. These two features, distinguishing bank payments from other network in-dustries, can help explain some of the observed cross country differences in payments arrangements.

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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 16/2005.

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Length: 32 pages
Date of creation: 11 Jul 2005
Date of revision:
Handle: RePEc:hhs:bofrdp:2005_016

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Keywords: network effects; incentives; payment technology; externalities;

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Cited by:
  1. Jason Allen & Walter Engert & Ying Liu, 2006. "Are Canadian Banks Efficient? A Canada--U.S. Comparison," Working Papers 06-33, Bank of Canada.
  2. Kemppainen, Kari, 2008. "Integrating European retail payment systems: some economics of SEPA," Research Discussion Papers 22/2008, Bank of Finland.
  3. Milne , Alistair, 2005. "Standard setting and competition in securities settlement," Research Discussion Papers 23/2005, Bank of Finland.
  4. Prosper F. Bangwayo-Skeete & Ryan W. Skeete, 2007. "Regional Integration and Elasticities of Export Demand in Barbados," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 23-41, January-J.
  5. Guido K. Schaefer, 2008. "An Economic Analysis of the Single Euro Payments Area (SEPA)," FIW Working Paper series 011, FIW.
  6. John Ashton & Andros Gregoriou, 2014. "The role of implicit costs and product quality in determining the customer costs of using personal current accounts," Working Papers 14001, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  7. Alicia García-Herrero & Josep M. Vilarrubia, 2007. "The Laffer Curve of Macroeconomic Volatility and Growth: Can it be Explained by the Different Nature of Crises?," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 43-60, January-J.
  8. Jason Allen & Walter Engert & Ying Liu, 2007. "A Comparison of Canadian and US Universal Banks: Efficiency, Productivity, and the Role of Technology," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 61-96, January-J.
  9. Prudence Serju, 2007. "Estimating Potential Output for Jamaica: a Structural VAR Approach," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 1-22, January-J.
  10. Guerino Ardizzi & Eleonora Iachini, 2013. "Why are payment habits so heterogeneous across and within countries? Evidence from European countries and Italian regions," Questioni di Economia e Finanza (Occasional Papers) 144, Bank of Italy, Economic Research and International Relations Area.

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